Aging workers starting to impact Canada’s labour market, RBC says

OTTAWA – No need to wait any longer for the baby boom retirement shock to hit the economy — it’s already here, according to a new report on trends in Canada’s labour force.

In a fresh analysis on employment, Royal Bank economist Nathan Janzen notes that the steady decline in the so-called participation rate continues even as the unemployment rate drops.

The participation rate, a little reported number that tracks Canadians with jobs and those looking for jobs as a percentage of the working-age population, dipped to 66.1 per cent in the latest employment data for April, down from 66.5 per cent from a year ago and from 67.8 in February 2008. The working age population is considered anyone over age 15 years, with no upper limit.

It would be easy to jump to the conclusion that the steady decline means tens of thousands of Canadians are becoming too discouraged to look for work and are just dropping out of the work force altogether, says Janzen.

But that would be wrong.

The most likely explanation is that many Canadians are dropping out of the workforce because they are retiring. And the trend is likely to become more noticeable going forward, Janzen said.

“This has long been expected,” he said, noting that in 2007 Statistics Canada predicted the participation rate could drop to the 58 per cent range by 2013.

“If you are waiting for the participation rate to turn as a sign of labour market strength you are going to be waiting for a long time.”

The best evidence that aging is the critical factor at play is the data on those Canadians who tell Statistics Canada each month that they are “not in the workforce” voluntarily.

From October 2008 to April 2014, that category has risen by more than a million, but most of those — 682,000 — were in the 65 years and older cohort.

As well, factoring out aging finds the participation rate has held relatively steady since the recession’s end.

“This suggest that all of the decline in the Canadian participation rate since the 2008-09 recession can be explained by the aging of the population and a resulting increase in retirements,” the report concludes.

The RBC analysis is good news in the sense that it suggests Canada official unemployment rate of 6.9 per cent is accurately reflecting the health of the labour market — slightly under the 10-year average but still about one percentage point above the pre-recession level.

But it also has potentially negative implications for governments. Several studies, including from the Parliamentary Budget Officer, have found that immigration won’t be sufficient to fully compensate for the aging workforce, meaning governments will have fewer workers paying taxes and more costs associated with an aging population.

The squeeze will be particularly tight on provincial governments that are responsible for health-care spending, especially since Ottawa has moved to protect its flank by tying health transfers to the growth in the nominal economy.

The PBO has projected slower labour force will limit economic growth to about 1.8 per cent in the next several decades, compared with 2.6 per cent for the 1977 to 2011 period.

The aging issue has also been a prime justification used by the Harper government for changes to job training programs, as well as keeping the controversial temporary foreign workers program, so as to meet what is feared to be a future skills shortage crisis.

Janzen is careful to caution that his report does not mean Canada’s labour market is fully recovered from the recession. The unemployment rate is still higher today than in 2008, more people are officially classified as unemployed and the number who have been out of work 27 weeks or longer remains higher than before the slump.

But the data does show that 95 per cent of the increase in the number of Canadians not in the workforce today is because they self-report not wanting a job, mostly because the’ve retired.